Monday, July 15, 2024
Home > News > Kenya Airways Issues Profit Warning, Losses To Grow Further To Shs584.8bn

Kenya Airways Issues Profit Warning, Losses To Grow Further To Shs584.8bn

A Kenya Airways Plane


Kenya’s national carrier Kenya Airways (KQ) will sink further into net losses by at least 25 per cent in its earnings for the financial year to December 2022.

This will be driven by forex losses from currency hedging positions it took on its US dollar-denominated debt that was taken over by the government last year.

KQ has issued a profit warning indicating that it will sink further into losses which will grow to at least KSh19.75 billion (UShs584.8bn) compared to the KSh15.8 billion (UShs467.8bn) net losses the company recorded in the full year to December 2021.

The airline says the wider losses have been caused by forex losses arising from the takeover of its US dollar-denominated government-guaranteed debt by the State and that its revenues have grown during the year despite higher fuel costs.

The government took over KQ’s loans amounting to $485 million (KSh60.35 billion) that it had guaranteed the airline as part of its rescue plan for the loss-making company after the airline defaulted on paying part of the debt that had fallen due.

“The forex losses were occasioned by the novation of the guaranteed SU dollar loans as part of the ongoing financial restructuring programme. This means that the exchange rate differences reported below the operating results and previously accumulated in the balance sheet reserves under hedge accounting treatment will be released to the statement of profit and loss since the hedge instrument no longer exists,” said KQ Chairman Michael Joseph in a statement.

“This is a one-off expected loss,” said Mr Joseph.

The higher losses are set to deflate the airline’s tyres at a time it had battled to cut its net losses by more than half in 2021.

KQ narrowed its net loss for the year ended December 2021 by 56.58 per cent on higher revenue as travel picked up with the easing of Covid-19 restrictions.

The national carrier reported a net loss of KSh15.8 billion in the review period compared to a net loss of KSh36.2 billion in the year to December 2020 when travel restrictions hit operations hardest, including the grounding of its planes for months.

The airline reported a KSh9.8 billion net loss for the first half of 2022, an improvement from a net loss of KSh11.48 billion loss that it recorded in the same period in 2021.

This comes at a time the government has promised to develop a financing plan that will see the end of bailouts to KQ by December 2023 to ease the burden of sustaining the firm’s operations on taxpayers.

“To support the aviation industry, the government will develop a turnaround strategy for Kenya Airways,” said the Treasury in the draft Budget Policy Statement (BPS).

“A critical plank of this strategy will be a financing plan that does not depend on operational support from the exchequer beyond December 2023,” said the exchequer.

KQ was allocated Sh36.6 billion in the current financial year to support its restructuring, bringing to a total of Sh63.2 billion the amount the government has given the airline recently.

It follows the KSh26.6 billion bailout the company was given by the Treasury in the FY2021/22.

“Although the company’s performance would reflect an improved revenue position in the year, and in fact is projected to post significantly improved operating results despite the higher fuel prices, the net earnings would be constrained by forex losses,” said Mr Joseph.

-Daily Nation

Leave a Reply

Your email address will not be published. Required fields are marked *